The Value of Prepping for Due Diligence: Interview #1 – Mindset

One of the issues that often arise in the funding game is due diligence. And, in my experience, few new entrepreneurs really know what due diligence really involves. Over the past year, I’ve done a great deal of work with Tony Drexel Smith, Founder and CEO of Blue Moon Consortium, a Las Vegas-based consultancy that has an amazing track record of thoroughly vetting companies so investors don’t have to. Tony has written more than 800 business plans in his career. From that work, he has developed a detailed process for rating a company’s readiness to undertake due-diligence and receive funding. Companies that surpass a score of 925 in the Blue Moon “Capital Readiness Report” receive the funding they’re seeking — close to 100% of the time!

I had the opportunity recently to speak to several entrepreneurs that have gone through the Blue Moon process and have gone on to receive funding commitments and launch or grow their companies. Over the next few weeks, I’ll share some insights from those entrepreneurs that can help you tie up all the loose ends required to be a truly fundable opportunity for investors.

A Story of Success

John Humphrey, an avid golfer, was on a wine tour in southern California with friend. Looking out the bus window John noticed a piece of land ideal for a golf driving range. “That’s perfect for a driving range, but I’d add all kinds of cool technology to make practice fun and I’d add food service and a pub and create a whole entertainment experience around it, because nobody likes to practice golf, but they love to be entertained,” John said to a friend sitting next to him. Shortly after that, John was on a business trip in suburban Chicago. While renting a car he asked the attendant if there was a golf course nearby. “Have you been to Top Golf?” the attendant asked. John had never heard of Top Golf, but was intrigued and decided to give it a try. John was amazed, here was something similar to what he had envisioned. But John had a lot of other ideas for technology, entertainment and customer experience that he didn’t find at Top Golf. And, he had a vision to build that facility in his adopted hometown of San Diego.

John and his small team worked for more than four years on the concept, technology components, business plan, financial model and to find a suitable parcel of land for the project. Finally, still more or less stuck at the conceptual phase, a colleague introduced John to Tony Smith and Blue Moon.

This is an interview with John Humphrey, founder, and CEO of 1Up Golf Development Group:

You’d been working for nearly five years prior to meeting Blue Moon, but hadn’t made a lot of tangible progress, what was holding you back?

We’d been taking the approach that our business plan would enable us to raise capital as long as we could talk to enough investors until we found the right match. We had pitched dozens of times. We kept meeting people with projects in faraway places like Idaho, Georgia, New York and Arizona. We’d begin discussing the concept with those developers. We were always at the mercy of their timelines and their ability to put a larger deal together of which we were just one part. Nothing happened.

What change did Tony Drexel Smith recommend?

Tony encouraged us to do our own deal. Find a parcel of land we liked close to home. Raise enough capital to tie up the land under a contract, then complete our business plan focused on what we could do in that specific location. Up till then, our business plans were non-location-specific. Our numbers could never be pegged specifically to a particular parcel and the exact costs of acquisition, building, design, and implementation. Looking back, I think that is a major reason that a lot of people “kicked the tires” with us, but didn’t commit the funding we needed.

What else did Tony Recommend?

In our very first meeting, Tony identified the fact that we were seeking to raise a lot of money — like $40 million dollars. He assessed our team and said your CFO is the most critical position on your team at this stage and you don’t have one. It was true. We knew eventually that we’d need a good CFO but we were thinking of a CFO to manage the money and our spending once we got funding. Tony was looking at it strategically — saying until you have a top-notch CFO with industry experience, you’re not going to get the funding. Tony introduced us to a colleague whose background in real estate development was stellar and we ended up hiring him. Tony also introduced us to a colleague with a long and successful history in operations management for restaurants — another really important team member that we did not yet have.

How did things change after that?

It was night and day. We focused 100% of our energy on finding the right land parcel in San Diego. The person we’d brought on as our COO at Tony’s recommendation was the guy who found the perfect parcel. And our new COO had a real estate background as well. Between our new COO and CFO we were able to get land under contract, while myself and my co-founder focused on raising the funds needed in order to tie up the land under the contract. Now that we had a specific location and our plan reflected the specific land acquisition, development and implementation costs for that specific location, our story was really very well-received by investors. We quickly raised the capital we needed to tie up the land.

But you still needed the “big money” in order to actually build the project

Yes. We spent the better part of six months with our team and Tony’s team working in concert to develop an incredibly detailed business and financial plan that was totally defensible. Every single claim was footnoted and tied to valid research and every number was grounded in current data and research. For example, I could tell an investor exactly how many “table turns” we’d have on a Tuesday in November in our sports bar or what we’d charge at different times of the day and different days of the week for use of our hitting bays. The plan was impeccable.

Was it just the plan that Blue Moon worked with you on?

No, the plan turned out to be just a small overall component. They put us through a thorough vetting process. We explored everything from our branding and messaging to our website and from SEC background checks and ID validation to qualifications and experience of our senior team. We were rated initially on about 100 factors that went into our funding readiness. Then, after Tony’s team and our team completed the entire due diligence process we were scored again. I’d never been through such a detailed process. In the end, we obtained a score high enough that Blue Moon could certify us as ready for funding due diligence.

What happened next?

Tony scheduled several meet-and-greet events where we could pitch to investors. Meantime, our entire team, armed with our awesome set of materials, was out canvassing their contacts. We all had a lot more confidence because we knew our total package was complete, defensible and exciting. All together it told a great story. And we could use the basic template of business and financial plans to create site-specific plans for other locations as new opportunities came our way.

Where are you today?

We have our entire funding commitment for our first project in San Diego. We have a world-class design-build firm behind us. We have a technology partnership with one of the top players in golf technology and a marketing agreement with a nationally known sports marketing firm. We also raised additional seed capital and are now looking at additional locations while we plan for the kick-off of our first project.

What would you tell other entrepreneurs who are maybe struggling to get to “yes” from investors?

I’m a big believer in mindset. From the beginning, our team has related to 1Up Golf as something that is definitely happening somewhere at some time. We held the vision through everything. We held it through a lot of false starts and deals that went nowhere. We held it through sources of funding that turned out to be illusory or standing behind several brokers that blocked our path. So, I cannot overestimate the value of holding to your vision until it materializes — because if you do, it will materialize.

But at the same time, vision without the right team and the right advisors isn’t enough. We had too many missing pieces and a lot of them we weren’t even aware of. As I think back to our early forays into fundraising I kind of chuckle at how unprepared we really were. When we got the key positions of CFO and COO in place and a re-focused strategy based on acquiring the land first, everything began to fall into place. Without the wisdom, practical knowledge and terrific contacts we got from Blue Moon, I think we’d still be holding to our vision, but we’d be a long, long ways from seeing it materialize.

Key Takeaway: An objective third party with relevant experience can show you missing pieces or misguided strategies that you might have missed and that might be keeping you from getting funded. The willingness to put yourself, your team and your idea through a very thorough vetting process that has proven results can bring those weaknesses to light and challenge you to fill them in BEFORE speaking to investors. And, having gone through such a process, you’ll gain a level of trust with new investor contacts, because your entire business and team has been vetted already and passed muster.

About Robert Steven Kramarz

Angel investor and venture fund manager; advisor on investor pitching and investor relations, due diligence, impact investment, Reg. A+, Crowdfunding and Revenue Royalties. He’s author of the recent books _Born to Star_ and _The Road Less Traveled – Raising Capital without Debt or Equity_. He’s currently Executive Director of Intelliversity and active team member of Entrepreneur'$ Bootcamp, Pacific Royalties, 22nd Century Ventures and Vantera Partners, and the advisory boards of another six companies. He works tirelessly to increase the amount of private funding available for innovation, science and impact investments.

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